Roman Khan: The Ecommerce Logistics Play Worth $10 Billion

21:39Matt Bertulli:How are these companies getting to that scale so fast while still capturing cash? Because like we talk about this all the time, like Sean, these companies, like product companies are notorious for just eating cash, especially if they grow fast, like inventory just crushes you. Is this the drop ship story or is this something else? This is the drop ship story. So the classic setup would be that they have a sourcing agent in China. That sourcing agent will maybe float them. Let's like, I take three out of four cases. The sourcing agent will find the product, have a really nice padding on the product, be a local Chinese person, go to the factory, source a product for them, take care of all procurement, but then take the personal liability risk of floating the payment terms to the drop shipper.

22:25The drop shipper will then scale up TikTok affiliates, Facebook ads, app love and ads, whatever it is, and then they'll drop ship the product from China directly to the consumer in the US. And that's a classic setup. So they never run into the working capital constraints that we have because we do like ODM products that are really unique to our brands, but like our logo stamped on it in a really unique way. So they iterate from zero to five million with like very generic products, then maybe start stamping them once they have product market fit, but they're not doing anything breakthrough. And they have a really incredible working capital setup, practically speaking.

23:00Obviously at one point when they scale to nine figures, which very few of them do, but when they do, they start parking that cash in inventory. But the genesis is it is a drop shipping story, Matt. All of us have built all of our equity in the value of having a business that

23:17Sean Frank:could be sold, right? Like Rich has some value, Raycon has some value, Matt has sold brands. And it is a phenomenon where like our brands are valuable because they've been around for 10 years or 20 years. Exactly, exactly. And they've done, you know, $100 million a year with$10 million EBITDA or whatever. So we expect someone to pay, you know, 10x on that. But then if someone can do the same revenue in 12 hours, basically out of nowhere, it like, it does lower the value of brands, right? And it just - It does. You have to be intellectually honest about it. Like it does lower the value of REG and RACOM.

23:54And like, if you don't have recurring revenue, like if you're not like an I made, like pure subscription kind of thing and you are like fully discretionary spending category like a wallet or AirBuds or whatever it does lower the value.

24:08Matt Bertulli:It does. It does. Is it not all at the same time it's like is there also not an opposing force where it does raise the value of a brand? So like if you are willing to go build that kind of company because the ceiling is so much higher can you not argue that they are worth more now because of this other play?

24:28Sean Frank:Only if you're willing to pass through the filters. It's like, look, yeah, Groon's, like, Groon's has, you know, subscription. Also, it grew faster than anybody with less capital than anybody. Like, Groon's did$300 million before they sold in one annual year. So it's like, yeah, it's incredibly valuable, but also they have the best growth story, right? And what really sucks if you're a slow-growing brand who is low EBITDA and has been around for a long time because that's when you get taken off the board. That's the ocean of my M &A pipeline, right? Like, so we, like, let's be like, let's be super intellectually honest about I'm not going to pretend my brands are any sexier.

25:08Let's be real. Like I have double digit EBDOM origins, but I'm not growing at like 300 % a year. I'm not, I'm not a grunt. Like, you know, like, you know, if I was a grunt, I'd be flying from SF to a New York in a private jet, right? Like, I'm just not there, right? Let's be real. But like, that was my M &A pipeline going into this, right? Like, so, yeah, I think it poses the question of like, how do you underwrite these things? How do you think about them? Who would I sell these brands to three, four years down the line? And I think I just have to refocus.

25:47Matt Bertulli:Do you guys, on this then, like Roman, are you saying, to my understanding, right? Right. Like you're both saying that sort of like the traditional path to building a consumer brand is largely going to be replaced by this new crop of of like how you do business. Like you stand up, it's more drop ship direct from manufacturer. It's basically an arbitrage play. The brand actually has no value. Like so brand equity as a value driver isn't a thing. And that really the only people who get to go play that game are going to be like maybe a certain categories. They need to have other characteristics like growth rate, quality of revenue.

26:28Matt Bertulli:Is that what I'm hearing from both of you? No, what I think is going to happen is it's matured so much. So think about when I started Linear, it's 2013. I'm a dinosaur in this industry, right? So back then, there was no AliExpress. There was no AliExpress plug-in to Shopify where I could click a button and be live, never meet my supplier and dropship from China. And that's directed to Kim Severe in the US. We, the three of us, built this industry. This is why this plugin exists, because we built so much GMB and created an ecosystem on Shopify, AliExpress, and all this stuff. So I think what's happening is that there's just going to be a lot more noise.

27:09And I like Sean's word, filter. Like, it's just going to be very hard for an acquirer to filter down to, like, what is the core value of Ridge and Raycom and Pella? It's very easy with these three brands because we've been around for so long. And Raycon has like five million plus customers. It's a huge brand. So bad example. But if you have something a third of the size, it's really hard to justify buying it. You have to be nine figures or bigger to merit, like even being in a selection filter, in my opinion. And that's why I want to go up in size. I think what would be really interesting is actually talking about public companies that I passed on.

27:48So, you know, I did Prenetics with IM8, but like if you go through the swat of like public companies I looked at, we can just take a couple of examples. Like look at pets, for example. I just tweeted about them. 1800pets.com. They sell like pharmaceutical for pets. I think they do 200 million a year. Don't quote me on this. 86 % of that revenue or something, I think is subscription revenue. They sell like pharmaceuticals for dogs. market cap is$35 million or$40 million or something like that. Yeah, it's like nothing. Maybe with debt on the book, like maybe the EV is like 50 or something. Don't quote me on this, but like it's tiny, right?

28:26In the pet industry with like probably single digit EBITDA, millions of dollars of EBITDA potential in the short term. It's like that you can buy something like that, right? with 50, like let's say you have to pay$75 million for that. Another DTC company that's publicly listed that no one talks about, I don't know why people don't talk about it on X, it's like Brilliant Earth. It's a jewelry company that's huge, has like 50 plus stores in the US, $120 million market cap. They have$60 million of cash on their balance sheet, no debt. EBITDA of probably 10, 15 million and$400 million of revenue. So you can buy a company like that for$60 million, right?

29:13Like obviously you have to pay more if you were to try to take it private, but you get what I'm getting at, right? Like, so I have a number of these examples that we can go down through the list of. But when you're seeing that in the public markets, it almost makes more sense to buy one of these in the public markets and take them private or do what I did with IMA, like Prenetics, like buy a part of it, let it be listed. Then go around and buy these private companies at higher multiples. like it's we're in a really weird uh weird space now for d2c multiples in my opinion very very

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30:45Sean Frank:Let's use the billionaire earth example, because if they have$60 million in cash, they're worth$120 million. That means the effective multiple on that EBITDA is four or five or whatever. For a public company that you can sell into and sell out of whenever you want, right? As long as the market's open, you can always exit that position. And what you're describing is the bid-ask spread. I just talked to a top banker. So there's like four or five really strong mid-market banks. So there's Jefferies, there's Raymond James, there's Mollis. I won't tell you which one, but I talked to one of them. And they said 75 % of deals that have gone out in the past 12 to 18 months have not got a single bid.

31:28Sean Frank:okay so think if you think about that that's people who went out that means they have a banker that means they did a book that means they did all of this work and they went out and did road shows and 75 didn't even get a bit right and it's because what they're asking is they have 2021 or they want 10x multiples on their ebda and the growth is only 15 or 20 or whatever and people people don't want to buy that because there's public opportunities that are so much stronger or different industries are ripping. You could have bought micron stock and it's up 15X or whatever, right? My business isn't up 15X in 18 months.

32:04Sean Frank:It's just not. Like, I'm lucky if I double in 15 months, right? So yeah, it is a crazy time. It makes sense why you wanted to pivot outside of buying brands. But then you said you might incubate brands. Have you started that process? Yeah, so I think, like, I am incubating to experiment. So my brands... suck for the TikTok funnel because I'm not solving a pain point, right? Like, some of these guys, yeah, some of these brands, like, show, like, a cure for cancer, right? Like, they're just like, well, they'll be like, take this, like, orange pill and, like, I'll get rid of your cancer. I can't do that.

32:43I have too much ethics to do something like that. But I don't think my brands are the best laboratory to learn and to actually really hone in on the TikTok funnel. So obviously we're doing it with Raycom. We're going to do it with Linear, but I just don't think it's going to be an astronomical success. So I'm incubating predominantly to just hone in and learn the skill and to understand the platform as an operator. So yes, I am incubating one or two supplements brands just to test the funnel and to like really wrap my head around how you build a TikTok first brand, because I genuinely intellectually just want to replicate the success of my mentees and understand it.

33:25It's not even FOMO driven. It's just existential. I really need to learn it because if I'm going to be an e-comp until I die, I can't just not have this in my toolkit, right? Like, so I want to learn it.

33:36Sean Frank:So Robin, you, you and me are two brothers from different mothers, man, because we both have horrible categories for TikTok shop and what Hudson is talking about. Maybe for the audience, explain why Raycon sucks, Ridge sucks, and why supplements are so good. Like, why is everyone making a fortune selling supplements right now? Yeah. First of all, with supplements, I think on TikTok, what I'm seeing from all the portfolio mentee companies is like, okay, the female audience on TikTok is really, really strong. So let me just start with that. Ridge is very male. Raycon is also predominantly male. Very future-driven and very commoditized Red Ocean type of product.

34:16The reason supplements are ripping or even forget supplements like QVC is ripping on TikTok is because they're selling solutions. They're selling solutions for problems that appear in the everyday. day. So supplements obviously is ripping because you're curing bloating, you're curing testosterone, like what Zach is doing, or you're, you know, you're curing all these problems that are really your willingness to pay and try is very, very high. And that works really well on a platform where you have to leave with an impression-based marketing effort. And it's a thumb stopper if you have a problem.

34:53But if you're being like, hey, buy this shiny gold wallet or these earbuds, that's just not a thumb stopper on TikTok.

35:00Matt Bertulli:How do you explain Comfort and Crocs and Portland leather? And like, they're not problem solution products. And is it just because they're so female forward and like price point? I think so. I think it's female and price positioning and the value add growing, the offer add growing, right? Like, so Comfort, I think, is like an outlier in all senses. So like, it's just like Hudson is a genius, incredible operator. you know, it's crazy. He came to me, he was in my M &A funnel really early on. And like I passed on Hudson. Can you believe that? That's like the anthropic of DTC, you know, it's like, what did I do?

35:40Like I passed on Hudson. He got introduced to me by David Fogarty. I haven't talked to him since actually, it's crazy. I was like, bro, like you're exploding with this Voodie brand, what are we talking about here? I can't do it. So I'm so glad I was wrong. I'm like, this is like Hall of Fame. I should actually print out that email chain and just hang it up on my office at the MNA. Like, this is what happens when you're 40 years old and you build up way too much bias and I should fire myself. But yeah, so like Hudson is just like an anomaly. So I think like Portland and Crocs are good examples.

36:14Female, super female, super strong brand equity, right? Like they're taking brand equity from build on meta and transposing it into TikTok too. But it's really rare to find something like a Raycon or Rich crushing it on TikTok, right? Like it's just hard, practically speaking.

36:33Sean Frank:Hey, I'm doing about 200, 300K a month right now on TikTok, bro. I'm doing the same too on Raycon, but that's like, I mean, compared to my mentees, they're doing that per day. They're doing it per day, right? Like, so I'm just like, we still suck, Sean. I hate to say it breaks to you.

36:49Matt Bertulli:Every time Sean posts a screenshot, I'm like, what's Hudson thinking right now?

36:54Sean Frank:Hey, I'm trying, dude. I'm Gen Z, too.

36:59Sean Frank:Okay, so I think it's really interesting. And so going back to 2024, 2025, you brought up something else at the beginning of the show, that meta was bad, and now you think meta's back. So now let's talk 2026, the opportunities you're seeing. We're going to end this show talking about logistics, dropshipping, all the new cool stuff you're doing. but what's working for you right now in 2026? Because I'm having a great year too, but I talk to people and they say that it sucks and it's horrible out there. So maybe help everybody out there. What's working with Meta right now and overall what's working outside of this TikTok method?

37:33I think Meta sucked for us too, like massively in 2024, 2025. And what I see as a common threat for the people it sucks for is that they're still leaning on their hero products from that era, post-COVID era or COVID era. And they haven't launched enough new products. So I'd say like 60 % of my success in these brands that are crushing on Meta is because we're launching new products and bringing newness to our audience on Meta that's very similar to the core offering we had in 2022 to 2024. So that's number one. Number two is partnership ads. When I talk to my mentees who have experience on Meta and I ask them, how much of your account is running on partnership ads?

38:24The answer is usually sub 5%. My accounts are running at 60%. Like anyone can go into my ad library, right? You can go into my linear ad library. We're running maybe 500 ads now. During a sale, we're running 1 ,000 ads. So we're not like huge on Meta. We're not like iMate or Comfort or any of these big brands, but we have a decent amount of ad diversity. Half of those ads are partnership ads. 60%, I'd say, of that spend is going towards partnership ads. So I think what's happening, if you take two, three steps back, this is a thesis I have, is that Meta knows that the feed is going to be filled with AI slot.

39:04So when you launch a partnership ad with someone with an IG account that's more than 10 years old, right? Like, you know, it's a legit person, has 100K followers, is super active, super trusted. You get two things. One, Meta will prioritize it in the auction because it's authentic, it's real, it's validated. Number two is you bridge the trust gap because it's like an influencer shilling your product instead of like a random UGC creator. So I think the biggest lever I have, the biggest message I have to founders is like, okay, maybe your product has gone stale and you have to do something new. I think like Moyes did it really well back in the days with Native.

39:44Like he launched new cents. We'll do all these things to just bring newness to Native, like a deal realistic. I think you need to bring newness to your product. But number two is like just run a ton of partnership ads with real Instagram accounts, with real followers and just spend on it.

40:00Matt Bertulli:Can you then go into like, contrast that with your comment on Apple and how you're seeing people spend six figures a day there? Because I think that I just want to understand like the landscape. We've talked TikTok shops and like the whole Hudson thing. And then now it's like Meta partnership ads. Even at the performance summit this year, it was like they just basically drill that into your head when you get there. And then you're saying there's people who are spending six figures on Apple and like is there a common thread here? Or is it just a completely different playbook over there too? Yeah.

40:34So I think I'm spending like 5 % to 7 % of my budgets on Apple. I'm not even that big of a spanner. It's pretty crazy. I mean, it's meaningful for us, but as a percentage of our U.S. spend, we're probably spending north of 10 % because Apple doesn't work in Western Europe. We're very global. So in the U.S., we're spending more than 10%, but it's not like 20%, right? so the main takeaway for us from the summit was with tom saggy talk about how he ramped up to 300k a day during q4 right like it's crazy like crazy and um the punchline i came up with was he has no sunk cost so when he spun up his brand it was it's like two years old or whatever like it's very fresh off the boat.

41:25He had the path of going with Meta, AppLovin, TikTok, yada, yada, yada. And he just happened to make AppLovin work first and just double down on that channel. And I think for us, like at Raycon, at Linear, AppLovin still today is a little bit of an afterthought. We create the creators for Meta and then we upload them on AppLovin, hoping they're going to work. It's like this, right? And that approach works if you want to have it be 10 % of spend but if you want it to be 90 of your spend like some of these kids were like 90 like we had three people in there spending six figures a day on apple oven uh which is really meaningful really material and uh you have to be like i'm obsessing about apple oven i'm obsessing about the end cards um like going all deep like the end cards were interactive like gamified like they were just like all in on on app loving so i think that was the biggest takeaway like no sunk cost app loving

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43:11Matt Bertulli:do you guys have brands that you know that do each platform like except like top one percent on each platform i know one brand um i know one brand that does it how like i've wondered this like you know uh roman i guess a good comp for me is like we've never made amazon work but we've put like if i look at it it's like we've made amazon work to the level that we've obsessed over it and invested in it, which has been like an afterthought. If I'm being truly honest, I've never really chased it, uh, in any brand. And I'm like, I'm so default, a meta guy that that's where I spend all my time. And I'm just wondering, like, has anybody mastered it?

43:51Matt Bertulli:Has anybody figured out like, is it feels hard to hire, like hire a person who's going to obsess at that level over applovin or TikTok? I think it's, there's one guy I know that's made both channels work, like where it's like equally weighted, I would say, like maybe 40 % meta, 40 % applovin, 20 % random stuff. But beyond that, I actually don't know anyone. That was the other takeaway from the event. It was very binary. So everyone is spending like 5 % to 10 % on applovin. Like everyone is in my camp of spend. But then there were these outliers, It's like these three kids that are spending like six figures a day.

44:29It seems very binary, maybe because the platform is new, because people are acclimating to end cards and all these things. I think that's going to change over time personally. But I don't actually know that many people in that bucket, Matt.

44:42Sean Frank:Well, I think every brand just has strengths, right? Like if it's channel from a sales perspective or a spenders perspective. Like I don't do wholesale well. I suck at wholesale. Like, you cannot get it to work. We have a whole team spending time and effort on it. But then you have somebody like Mike who crushes at it, right? Like, we are D2C. We are Amazon. We are Meta. And we're in the 5 % to 7 % tech camp on AppLovin and TikTok like everybody else. Matt, you got a point you wanted to hit?

45:10Matt Bertulli:Yeah, I got a few, actually. I think I want to come back to on this sort of, like, making these platforms work. Like, Roman, you start, one of the things you said earlier is, like, you're noticing some of these newer generation of brands are also like AI first in their, not just the company building, but it almost sounds like there's an AI creative trend that you guys saw at this event. And I'd love to just like, where is that working? Number one. So like, is that on all platforms? Is that what you heard? Or is that more concentrated in like Meta or Apple and or TikTok? It's just It's a fascinating topic for me.

45:48There were two kids at the event. They went from 1 million to 7 million a month, purely on the back of just scaling up AI creatives. So there's two levers. One, they launched a bunch of new products and they brought them to market with an automated AI flow. So they would have a sourcing office in China. China would take a picture of the product against a generic white background. They would then have an AI workflow, render it, turn it into PDP on their site, then turn it to create ads with that picture and then run ads automatically. The workflow was like literally like, OK, generic white e-commerce pictures coming from China all the way to PDP to the ad account, all meta first.

46:36So I can't answer your question on where it's leaning into whether it's TikTok, Apple, or meta, but this is like the best prime example I got from the event. And they were showing us the workflow at the event, which was really eye-opening to me. So that's becoming more and more of the standard. It's very hard to implement at Raycon just because of the size of the product. Very hard to implement at Linear. Somewhat easier to implement at like the other companies I have. But we're nowhere near. Like if you look at my ad accounts, 5 % of my creatives are enhanced with AI. and maybe 15 % to 20 % of my working ads are pure AI and they're predominantly statics.

47:19They're not even video. But that's becoming more and more this trend. So this brand in particular, 90 % of their ads were AI created.

47:27Sean Frank:I'm actually more interested in what you said about how OpEx is lowered, right? And we've seen OpEx go from 15 % and you brought up Reformation. They were probably at 25 % of revenue going to OpEx and then we watched it go down to 10%. Then we want you to go down to eight. And what do you think best in class for 2027 is going to look like? Yeah, good question. That's what I'm asking myself too. What is best in class OpEx on a move forward basis? I think it's going to be sub 5 % personally. I think it's going to be sub 5%. You want to cut as deep as you can and spend as much as you can on paid marketing.

48:04I think it's going to be sub 5 % at like$100 million revenue per year.

48:08Sean Frank:Right, because creative costs go to near zero, right? You know, people costs, you're going to have five people running these entire companies. But what, are there softwares you're getting value out of? Or is it just cut everything, put every single dollar into Meta because that's what, or TikTok or Apple, because that's what drives people. Like, is it just burn all the bridges, go all in unpaid ads? I'm just curious how radical the future is. I do think it is like burn all bridges and go all in unpaid ads, unfortunately. I wish I had a better answer, but I think it is that simple. I think it is really like, how lean can you go and how much can you spend against LTV?

48:45I think that's what it's going to come down to, to win the race. And then I think evolution, so we went to Casify's office during this event, right? Like, so for context, Casify is this behemoth of a phone case company, behemoth, like hex clad, big, right? Like, maybe bigger, to be honest. and it was so inspiring because Wes has like OCD. Like he's like an incredible like Steve Jobs type. Like everything is just like, the office is just like insane. We have videos of it itself. Like it's just like, it's crazy. So we went to his office and the topic was how to scale retail. So he's got from zero to more than 70 physical stores globally and they're murdering with their stores.

49:32So I think if you can get to nine figures in revenue on your dot com, step number two to really be AI proof and to build a brand is to go offline and open retail stores. That's that's my or or go into retail. Yeah. Or go into retail, wholesale or. Yeah, exactly. I don't wholesale or if you're in, you know, non discretion, like if you're in like non essentials, you probably have to open your own stores to really build a brand with a moat.

49:58Matt Bertulli:It's like we're entering a world where it's just extremes. You know, like on one hand, you've got like we're talking about the hollowing out of everything in a brand except for paid media. Right. And the factory and everything between the factory and paid is like literally it's all up for like just moving around and shrinking. And then on the other side, like what you're hitting on is as AI gets more prolific, offline, analog, real also becomes more important. Exactly. I think the best example, like whenever I'm in New York, I mean, I think we all know Buck Mason. Sean, I think you introduced me to the founders of Buck Mason, right?

50:40Like, because I want to learn about retail. Yeah. I just found my first lease for linear, actually, in Hong Kong. Like, I'm really excited. I'll come back next year after we open.

50:48Matt Bertulli:Jewelry is a great place to do retail. Yeah. They work so well. Yeah, like Buck Mason's store in Soho has like a coffee shop, right? Like it's like, it's an experience. It's like a living room like this. Everyone should kind of Google Buck Mason Soho. It's like such a cool store. You want to go in there, hang out. I think that's the future. And I think if you really want to evolve and kind of move forward, you have to think about that when you cross up your million dollars in revenue. One thing I want to add, Like it's like, I think GMV target for Shopify in 2026 or 2027 is 600 billion, right?

51:26Like 600 billion or something. And back in the past, I'd say 30 % of that would be spent on ads. I think in the future, that's going to be 40 to 45%. Like I spend 40 % of my revenue on marketing. I think the average is lower because I've just seen so many companies in the M &A pipeline spend 20, 30 % and rip a lot of profits. But, you know, the brand I bought in June was spending less than 10 % unpaid of total revenue, right? Like a$25 million, just to give an idea. So I think the future is just, you know, that's going to go from 30 % to 40%, right? Like, so we're going to go from like 150 billion of ad dollars on shop, but like 120 billion maybe now on ad dollars powering Shopify, so it's probably$200,$250 billion, right?

52:15Like over the next two years. It's going to be dramatic, I think.

52:17Sean Frank:And people always say, oh, Meta should buy Shopify. That was like a common thing. But they don't have to because like half of Meta's revenue is coming from Shopify merchants anyway. It's like - Exactly. Like for me, it's take Meta, right? Like$180 billion in revenue, 55 % operating margins, right? Like it's a behemoth. It's going to get to$300 billion in revenue in the next two to three years with the higher operating margins because they're firing everyone, right? Like, they're just firing. Like, they're doing, like, what's happening in DTC is happening everywhere, right? Like, it's just like, it's, like, obviously, they're cutting people.

52:55They're spending it on AI. At one point, the CapEx is going to stop and they're going to, like, rein in on CapEx spend. We just know that. That's a truth that's just waiting to happen. and as that happens, I think players like TikTok will follow because if you think about TikTok, why does the ad product suck? I think the product sucks because they have TikTok shop. The ad product, Spark Ads, is just optimized for like really short attribution windows and it's made the ad team at TikTok a little bit lazy on building something that replicates meta, which is basically creating a marketplace place where people bid for LTV and not short-term productions, right?

53:37Like that's it.

53:38Sean Frank:And the power and beauty of Apple when it came out is it was the only company that figured out how to make as good of an ad engine as Meta. And if everyone else does that, like, I mean, it's a boom for e-commerce, but I do want to say, totally. And what you're talking about is like perfect state capitalism. It's like, there's the people who make the products and then all the money goes to get the attention and everything else gets cut out. And we've all seen these VC backed companies. And we're friends with some of them who they still spend 20 to 25 % of revenue on people. And I'm like, what the hell are they doing all day?

54:13Sean Frank:I talked to a brand. This brand's not VC backed. It's a new brand. Very, very fast growth. First year they did 20 million. Second year they did 40 million. It's a physical goods company. And I was talking to them and I'm like, yeah, so tell me about your team structure. They're like, yeah, we have 40 people. I'm like, why? I'm like, what do they do? You're doing$40 million. Why do you need 40 people? It's like, they don't make the product. They don't ship the product. What are you doing with all those people? It should really be five or 10 is the reality of the future we're going towards.

54:42Matt Bertulli:Most AI tools and software don't give you direct ROI every month, but PostScript does. I run two PostScript AI products at Ridge. Both show up on our P &L. Infinity Testing runs continuous A-B tests on our SMS automations completely in the background. It's driven$446 ,000 in incremental revenue, not just attributed, incremental. That's a 32X incremental ROAS with click-through rates up 43%. Then there's Shopper, an AI sales agent that answers every inbound text in under 40 seconds. We're running 23X ROI on messaging costs alone. If you want SMS software that gives a proven ROI, go to postscript.io and book a free demo.

55:20Matt Bertulli:Yeah, I think it's hard to argue that, that I don't think you can actually take the opposite side of what you guys are saying, right? Like I do know some, but I know a guy actually has like 55 million in revenue, lots of product. So like skew variety is pretty high. I think there's six employees in the whole place. Like it is really, it's like, it's a perfect example of like, and there's young dudes that have just figured out how to do things in a scrappy way. It's like very technology first. And I think, Roman, what you're hitting on with the TikTok shops meta thing is like they both have the inverse problem of each other.

55:54Matt Bertulli:So like TikTok shops doesn't have an ad platform because they figured out how to monetize shops. Meta has never figured out commerce. Like, guys, we're old enough. We've been around for every iteration of Facebook shopping and they've all failed. But I think they fail because Facebook has like the highest revenue per user monetization ad platform in the world. it's really hard for them to turn anything else on and out like out compete that thing like so that the bar is just so high for both of them to kind of cross over i mean it'll be interesting to see if there is an iteration of this with like maybe instagram tiktok shops copycat like maybe they figure out a dollar per user number that's higher than their ad product

56:38Sean Frank:matt you're 100 correct how can they how can they build a better thing when they have the world's greatest business to ever exist. It's like, why is Google scared of AI? It's because they have a crazy cash flow money machine that finally somebody might take a slice of. But okay, this was good. So I'm going to summarize the episode up until now. What we talked about is you got to move to Hong Kong because that is where it's the center of commerce. Everything's made in China. It's just the reality of the world. And you want to be as close to those factors as possible so you can negotiate better prices you can work out any issues you could see samples faster and it's a very safe city it's a very fun city uh there's a lot of things going for hong kong the second thing is roman was buying a bunch of brands and i think everything he said applies to every single private equity group they looked around and they said look the public markets are ripping ai is over here why would i tie up capital and assets that are overvalued and why Why not just launch themselves?

57:37Sean Frank:The third thing is we saw this new generation, this wave. Hudson is the poster boy of it. But TikTok shop-powered brands that get great creative, they put them over on Meta, and they scale the hell out of them, and they do$10 million in their third month. It makes us look stupid for sitting around for 20 years trying to get a brand to do$10 million a year. The fourth thing is what's working right now. It's partnership ads on Meta. It is diversifying into more ad channels and has taken the UGC creative or the AI creative and scaling it up everywhere. Now let's get to the fifth part of this podcast.

58:10Sean Frank:Roman, you are now an advisor for Quince. Everyone thinks of Quince as the place to buy nice sweaters, but they just raised a$10 billion. And no sweater company can be worth$10 billion. So what is actually happening inside of Quince? Why is it going to be$100 billion?

58:23Matt Bertulli:Talk about this manufacturer to consumer. I think Quince is the poster boy if manufactured to consumer, right? So Sid, the founder, who is very reclusive and secretive, I convinced him to come on Operators to talk to you guys. So I won't butcher his story. I'll let him tell it himself. But I've known him for probably more than five years, maybe eight years. We use the same 3PL in Hong Kong. So that's how I got to know Sid. And I just saw this business go from zero to like an insane amount of billions and billions of dollars in revenue over a very short period of time. incredible company that actually embodies the whole MTC principle.

59:03So all of their suppliers actually consign products with them. So it's like suppliers agree to be FBA sellers, basically own quits. And then quits takes care of the rest, acquisition, fulfillment, all that stuff. And I think the business works so well because their retention curve is just next level. So they built up this like incredible capability of dropshipping their own products from India, from China to the end customer in the U.S. using a crazy logistical setup. So they built that out. They then decided to externalize it. They asked me to be an advisor to Quince. And the value proposition is just so good that I want to use it myself for Linear and Raycon.

59:48Because you're able to ship a product from China to the end customer in the U.S. at a fifth of the price of FedEx. So insanely cheap, which helps us not tie up working capital in inventory by seafreighting it to the US, unbundling it and, you know, shipping it to a 3PL. So it's faster and cheaper. And they basically just decided to externalize this capability. And I think that's the future of commerce. Like just get closer and closer, cut out every middleman and all the fat between the Chinese factory and the end customer. So the service is just like insane. I've never seen something like it. I actually tweeted about our first client on Quinn's Logistics.

1:00:36They're selling stuff to suburbia in the US, like a thousand suburbian moms every single day are ordering their product. And on average, we're delivering the product in less than six days, door to door from China, including Sundays, right? So it's super fast. the founder can now turn inventory much faster. And I think it's like what all these other dropshipper providers want to build, but they just didn't have the speed to match it. But these guys have kind of solved it. I think even for Raycon, when we move over, it's going to be faster because Quince flies these planes all across the US. So they'll have a plane go to the West Coast, to Chicago, to middle America.

1:01:17So they just get much closer to the customer because the parcel moves like a human. So if you think about it, when I board my flight in Hong Kong at 2 a.m., I'll land in New York the same day at 6 a.m. And I'll just walk through immigration, right, and get to my office at 10 a.m. They've basically done the same for a parcel. That's basically what they've sold. So it's just insane. And it's been fun to watch this scale up. I think just from my Twitter, we've gotten a 200 million ARR pipeline, which speaks volumes of not my following, but like how much of a product market fit they've kind of hit, right?

1:01:53Like, it's insane. I couldn't believe it. When I saw this spreadsheet, I was just like, what is this? This is insane. You know, it's just like insane.

1:02:00Matt Bertulli:Okay, but like this whole like thesis that you have that you posted about, which is like, we're like M2C is the future, right? Can you unpack that for people listening? Because like you put this thing up on X. I think I messaged you right away. I'm like, Roman, what the? And I'm like, we got to talk. So like unpack the thesis because like Quince is a good example, but like why do you think this is going to be the future? I think the best example is like my keynote speaker at my first event three years ago, Angus Kong. So people can Google him on YouTube. People should obsess about him. He's like the Hudson of China.

1:02:38Okay. So the guy does like crazy numbers. I don't know how much he wants me to disclose, but we're going and touring his factory and his setup. Okay. In China on my summit. So if you come out in October, you can see it. So he's basically an affiliate marketer. He doesn't own the factories, but he works directly with the factories. He'll literally go in and launch 100 products per day, like 100 per day. I'm not exaggerating. Like he'll do 3 ,000 products per month, approximately. 2 ,000 to 3 ,000 products per month. Spin up landing pages, run ads, pump them. As soon as they start declining, he'll stop and move on to the next product.

1:03:16and they're just running the whole machinery for profits. His HR structure is really crazy, but I think that's like the actual future of commerce. You'll have like super powerful affiliate marketers partner with factories in China directly. With AI, the language barrier is much lower. Like these guys can write fluent English, they can write scripts, they can do all the stuff they use American copywriters, Westerners like myself for, and then go live and sell their products directly, dropshipping from China. Obviously, you can't drop ship that big piece of furniture, but like some earbuds or some jewelry or a ridge wallet, super easy, right?

1:03:52Like super easy. So I think that's the future, frankly speaking. I think we're going to see a lot more of that.

1:03:58Matt Bertulli:Where does brand come into this then? Do you think that the brand builders are also going to do this? Or do you think maybe, but like if you think about it, like 80 % of, sorry, I'm exaggerating here, but probably 60 to 65 % of my consumption is like stuff. like this, like this, this roll of paper, right? Like, yeah, like unbranded, who cares? I don't even know what the brand is, right? Like, I don't care. Like, it's just a pure commodity to me. And I hate to say it, but it's probably going to be the same for like wireless earbuds and some jewelry. Like there's going to be like things you just buy purely for style, price, and convenience.

1:04:33And I think like, obviously, a lion's share of value and profits will be captured by real brands. But I think there's a whole swat of this like Amazon FBA style businesses done in a D2C way. Why have they not been done in a D2C way before? Because it's operationally complex to sell on Shopify or on.com. And I think the ability to sell on.com is going to be as simple as an FBA listing. You're going to have to put in minimum listings, right? They have to have a good product, but I think D2C is going to be FBAized, right? Like it's going to be like completely Amazon-like eventually.

1:05:14Sean Frank:Roman, I'm glad you brought up Amazon because this idea of externalizing a resource is Amazon. Like Amazon AWS is a$200 billion a year, you know, win of the business that they externalized. And I've talked to senior VPs at Amazon and they're trying to externalize everything right now. So Amazon Pay is Amazon OneClick, like Amazon Logistics they're trying to get money for. And what Quint is doing is the advantage Timu and Sheehan had of going directly to vendors and then airing it into America, Quint is like, we will let everybody do that, right? And that's why, because people are like, why is Quint worth$10 billion?

1:05:49Sean Frank:Does this make sense? It's because they're trying to be the AWS of logistics from China to the US. So, and I think it's, I want to pinch you guys an end state. the end state of commerce is whoever can spend the most on attention will win. And that's why OPEX is being cut. That is why, you know, you're removing warehouses, you're removing creators, you're removing everything because every dollar that goes into attention is the, whoever can do that at the end state wins. And that is the world we're in where every single dollar needs to go to marketing. And it sucks. I love my team. I'm going to keep them.

1:06:23Sean Frank:I love everything. I love, you know uh building a brand and culture and vibing but the the brass taxes capitalism is whoever gets the most attention is going to win and whoever puts the most money into it is going

1:06:33Matt Bertulli:to win so that's what i i don't think it's i think sean it's just all you're saying is there's likely a lot more companies but with just fewer people per company right uh and that like more and more money goes into distribution okay the world is everyone's an fba seller so i was going to say, are we all just running 100 different, what is the brands in FBA? It's like, if I just mashed my keyboard like a cat, that's my brand name on FBA. It doesn't really matter. I'm going to take that copy of what Sean just said. It's a world where everyone is an FBA seller. It's 100%. That's hitting the nail on the head.

1:07:11And that's actually so well distilled because that's what made me pause in 2024. I couldn't articulate it back then, but I was like, Something is profoundly changing now. I've been doing this game for at that point, definitely more than 10 years. I was like, something has changed. This was an inflection point.

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1:08:10Sean Frank:So check out AfterSell and tell them that the operators sent you.

1:08:15Matt Bertulli:what's your take on shopify then guys like uh roman i know you've had some takes on this but like where where does and i guess like it's maybe a different way to answer this is like where does the dot com uh value lie right like and shopify's role in this ecosystem is pretty substantial right now i'm a super bull on shopify in general as a stock it's very expensive right like it's price on a sales ratio, it's not priced on an EBITDA ratio because people are extrapolating that at one point it's going to go to$1 trillion a year instead of$600 billion a year,$1 trillion a year in GMB, and they're going to have a lot of pricing power.

1:08:52I think what's at risk now is their pricing power. So if they came to us today and said like, hey, your Shopify Plus is going to go from $2 ,000 a day to$10 ,000 a day, I think most of us would just suck it up and pay it. But, you know, a month, yeah, a month, sorry, yeah, a month, sorry, yeah. Yeah, unfortunately a month. Yeah, exactly. So we would suck it up and pay it, right? Like, let's be intellectually honest about it. That being said, what I think is going to happen five years from now is you're going to have what, like, these kids that came and are spending on AppLovin instead of Meta is you're going to have this potential of, like, just clicking one button on Medusa and, you know, have a front and fully loaded that Shopify, like, with an order system like Shopify.

1:09:36So I think they're going to have a lot of competition coming the next three years. There's going to be a Medusa, like Next Wave, whatever those platforms were that I wrote in my thread are going to come up and really give Shopify some pricing pressure. That's my two cents. I do think Shopify is a little bit weak at a couple of things. Like I've been with Shopify since day one, right, with my brands. Like going global on Shopify is a pain. Like it still is. like globalizing, all that stuff is really tough. And like my brands are really global. And number two, I think is like, it is not truly AI first, right?

1:10:15Like if you think about one of my mentees that I wrote about, he's actually Norwegian of all places like myself. So he did like$45 million in TTM revenue on track to do a hundred million this year. And his whole setup is, you know, claw terminal, just like launching products in a very similar fashion like Angus not 100 a day, he's doing like 50 to 100 a month, but he's spinning them up using Claude. Once they work in the US, he just has it translated into 50 different markets, spinning them out. Replicating that workflow in Shopify is extremely difficult today. So if you want to think about in the world of where everyone is an FBA seller, I don't think Shopify is the best tool right now.

1:10:59Would I bet against Toby and Harley? No way. We've met them both. Like I would be like a run for the hills before I do that. Right. Like I wouldn't be that dumb. But right now, if you were to ask me, I think they're at risk and they have to make some big changes to accommodate the future of e-commerce, in my opinion.

1:11:17Sean Frank:Yeah. You know, one worry I have about the future of all SaaS, all services is in three years with a limited compute and limited tokens. If I asked Claude, hey, I want to sell something, it would just build its version of Shopify. right? Like, you know, Dario, the founder of Anthropics idea is that there's a country of geniuses inside of every single server rack. And if you really had 300 million PhDs, if I asked, Hey, what's make me the best selling, whatever it would just do it. And it would create entire workflows and systems and thousands of lines of code. And then that's what I would just be sitting drinking a smoothie or whatever.

1:11:57Matt Bertulli:So, um, yeah, I think Sean, I'm, I'm with you. I think like, I think that that's like directionally correct. I think the timeline is just way off. I mean, I think we are like decades because what Roman is saying, and which I think I agree with both of you, I just think it's like 20 or 30 years away because you're talking about connecting like everything is code, anthropic, to factories and that everything in the middle is like not valuable because everything in the middle can be code or it can be pushed over to the factory. Like that's kind of where we're at. Like even the media buying is like, well, Facebook's got all the demand.

1:12:32Matt Bertulli:That AI is going to talk to this, their AI, and it's going to hook up to whoever owns the factory. And that everybody that used to do all the work to facilitate all that stuff is just gone, including Shopify. I just, it is so many moving parts. I don't know, though, but because Matt, like, I built, like, so, you know, for me, like, right now, I'm really focused on picks and shovels, right? Like, so I think my equity at Quince is going to be worth a ton. Like, cities being very generous. Dude, I think it's a great play. Yeah. Prince is like. It's great. So I did something where I thought about it like what Sean did, right?

1:13:06So at Linear, we upgraded our packaging and we've had like a huge LTV lift. So I started a packaging supplier. So I'm now selling packaging because like all my mentees need packaging. And the interface I'm building for the packaging is an AI first interface. So you can render all yourself. I'll send you the demo link once it's ready. But then I'm taking on like first principle of e-commerce. Like, okay, Sean might be, my clients are new to the game. They're new to e-commerce. Like they're kids fresh off the block. And they don't understand if you shave off like one CM on the side, you can save a dollar with USPS, right?

1:13:41Like, so I think service providers are going to build things that can interact with agents. That's why I'm trying to do at least as a thought experiment. Because I think like going back to Sean's thing, the reason I think, Matt, you're extrapolating the timeline is because you're still dealing with humans on the other end. But if you start having vendors build really authentic first, I think it's going to be very, very different, right? Like, I think so, right? Like I would work with my, if I was like a jewelry factory and it was like truly AI first, I would 100 % like work with me, right?

1:14:16Matt Bertulli:Like, so yeah, I think that's, that's like - Dude, totally. But you know, like, I guess my argument is always, we're a bunch of dudes and you have to discount dude logic. And because like the way that we move through the world is very different from like more emotionally intelligent beings. And like the way that we consume is very different. Like I am happy to have robots by most of my with like some amount of exceptions. And I am happy to not interact with any other humans. That's not true for a lot of the other people in our species. So I think we have to remember there's a lot of participants in the economy and a lot of incentives that are competing, as much as I love this future.

1:15:02Sean Frank:All right, guys. Roman, I love the idea of starting picks and shovel businesses. I'm thinking about starting more manufacturers. I would love to get some equity in your packaging companies. Go ahead and just send the advisory agreement over. I'd love to get that. But we, okay, so we just unpacked where we think commerce is going. It is going to be more money spent on marketing. It is going to be close relationships between manufacturers and customers. And how does a brand sit and navigate that? If you're a brand doing 10, 20, 30,$50 million a year, that's our core audience. This is going to be a negative episode for you, but you should, like Merman has said countless times, be intellectually honest.

1:15:42Sean Frank:Like, where do we think the world is going with AI, with all these kid brands? Like, you called them 18-year-olds wearing diapers, basically, like, coming out and doing$20 million a month, punching you in the face, and they have different rules. It's a different game. Don't get left behind. Roman, what's the one tip you'd give to a brand owner? They're stuck. You know, they're not one of these fast-growing kids. They're doing$10,$20,$30,$40, even$50 million a year. They were praying for an exit. What's the lesson you would give to them? cut costs and take out distributions every single month. On the 30th and 31st of the month, you send yourself a calendar invite saying dividends.

1:16:21And then you take half of the profits in your business and you spit it out to yourself. Then you ask yourself, how can I double that dividend in the next like 60, 90, 180 days, whatever your timeline is, but just start saving up money and take it out of the business and leave your ego at the doorsteps and choose lower growth for more dividends. Dividends first, always. That's my core message because I still talk to founders who are drunk sailors who think like a private equity is going to come in and scoop them up. It's not happening anytime soon unless you're crushing it and you have recurring revenue.

1:16:55Matt Bertulli:So it's basically operate like your brand equity is zero. Yes, correct. And all you have to get is cash at the company. Plan for the worst, hope for the best. Love it. That's it.

1:17:106